Las Vegas Sands is getting slaughtered

Las Vegas Sands Chairman and CEO Sheldon Adelson speaks during a news conference at Sands Cotai Central, Sands' newest integrated resort in Macau April 11, 2012. Billionaire Sheldon Adelson said on Wednesday that he plans to spend $35 billion on a mini-Las Vegas strip in Spain, where he is courting the country's two top urban areas, Barcelona and Madrid, with plans for a casino complex.
REUTERS/Tyrone Siu
This is what happens when you call a bottom too early.

Las Vegas Sands Corp., the massive casino owned by billionaire Sheldon Adelson, fell over 10% on April 21 after reporting dismal earnings the day before.

There's really only one place to blame for this — Macau, the world's largest gambling center.

Here's how Wells Fargo analyst Cameron McKnight put it in a note following the earnings release [emphasis ours]:

Q1 Macau EBITDA was 5% below recently elevated expectations. Expenses were higher and margins were lower than expected. With the recent rally in the group, investors were expecting another margin-driven beat. Management is hopeful Macau is stabilizing, though noted that March wasn't strong and hopes it was an aberration. We remain neutral on LVS and Macau. With the stock +21% this year (S&P +3%) and trading at 15x 2016E EBITDA, we believe stabilization is already discounted. We think it's too early to call stabilization - and don't expect a v-shaped recovery when we see it.

Casino stocks have enjoyed an impressive run since the beginning of the year. That's because analysts on Wall Street — and some company data — has been showing signs that the bottom has been reached in the collapse of the world's largest gambling center, Macau.

Back in 2014 gambling revenue started to evaporate on the Chinese territory. The Chinese government had started cracking down on "corruption", and high rollers started getting scared of flaunting their money. That segment collapsed. At the same time, government restrictions on foot traffic to Macau and its monitoring of UnionPay, China's debit card, made heading to the casino troublesome for retail gamblers as well.

There were moments in 2015 when gambling revenue was cut in half. It was a bloodbath.

Bottoms up

But when gambling revenue started to show signs of life in late 2015, analysts started to call a bottom. It turns out they were too early, especially given a slowing Chinese economy overall.

"There's a slowdown in China that is affecting the way people are spending," CEO Sheldon Adelson acknowledged on the company's earnings call.

Las Vegas Sands also blamed its weakness — especially poor earnings in Singapore — on a strong dollar. But some of that has to be chocked up to Chinese government restrictions too. It vowed to follow Chinese gamblers abroad if it had to. Also, costs were higher than the company expected, and non-gaming revenue (think: malls and clubs) was down 10%.

Adelson vowed that the company would cut costs going into 2017, but there's another fly in the ointment. With gambling demand down in Macau, there's more supply coming online. Both Wynn Entertainment and Las Vegas Sands have big casino openings slated for 2016.

Adelson thinks this will help.

"We are in a position to deliver further operating margin improvement, especially after the opening of the Parisian," he said.

We shall see. It looks like Las Vegas Sands' problems are also impacting the rest of the sector. Both Wynn and MGM fell on Thursday's trading day, with Melco Crown — the conglomate owned by Australian billionaire James Packer and the son of a Macau scion, Lawrence Ho — getting hit the hardest. It fell almost 8%.